Bizspace Spotlight

“Clearly we will reinvest in the business. We think there are opportunities out there… more

Some of Georgia’s largest public companies plan to open their checkbooks for new property, buildings and equipment during the coming year.

The Coca-Cola Co., United Parcel Service Inc., Mohawk Industries Inc. and Carter’s Inc. all plan to increase their capital spending during 2013 from what they spent last year. Combined, the four companies expect to spend an additional $650 million this year.

But for the year ahead, some forecast growth and investment opportunities.

Coca-Cola expects to deploy $3 billion on capital expenditure for 2013. This is up 8 percent from its 2012 expenditure of $2.78 billion. The beverage giant said 52 percent of its capital expenditure last year — or $1.45 billion worth — was spent in North America.

“We have commitments for the purchase of aircraft, vehicles, equipment and real estate to provide for the replacement of existing capacity and anticipated future growth,” the company reported Feb. 28.

“Clearly we will reinvest in the business. We the think there are opportunities out there in the emerging new markets,” Scott Davis, UPS chairman and CEO, told analysts on an earnings conference call Jan. 31

“There won’t be things the size of TNT likely, but there’ll be opportunities for us to reinvest in the business,” he said. Earlier this year, the shipping and logistics company’s $7 billion bid to take over Dutch shipper TNT Express was blocked by the European Commission. “What we need is for companies to deploy the large cash balances they’re holding on to,” said Chuck Mulford, professor of accounting at Georgia Tech’s Scheller College of Business. “We need growing capital expenditure as a sign of confidence in the economy and it’s the leading indicator of increased hiring.”

The increase in spending is also a positive indicator that companies are seeing greater investment opportunities to grow revenues, he said.

Mohawk Industries plans to boost capital spending by as much as41 percent in 2013. The Calhoun, Ga.-based carpeting and flooring company reported Feb. 27 it plans to spend between $275 million and $295 million this year to “purchase equipment, add geographic capacity and to streamline manufacturing capabilities.”

Combined, Coca-Cola, UPS and Mohawk will be spending more than $500 million more on capital expenditure this year, over last.

“There was a pent-up need for capital spending by big companies. They were conservative over the last few years, but now they feel more confident to invest,” said Greg Charleston, Atlanta-based senior managing director of turnaround consultancy Conway MacKenzie Inc.

Some of the capital expenditure could come in the form of manufacturing being insourced back to the United States, said Georgia Tech’s Mulford.

“With the opportunities created by cheap energy and the lack of cost differentials between outsourcing and insourcing, we could see general manufacturing spending increase,” he said. “It’s very, very exciting.”

Overall, U.S. companies’ capital expenditures are expected to increase by 7.6 percent in the manufacturing sector and by 7 percent in the non-manufacturing sector in 2013, according to an Institute for Supply Management semi-annual forecast that was compiled at the end of last year.

Some of this will benefit Georgia. For example, Baxter International Inc., which is building a $1 billion plant near Covington, Ga., spent $1.2 billion on capital investments in 2012. This year, Baxter expects that amount to soar to $1.7 billion, “with the increase primarily driven by expected capital expenditures related to the construction of the facility in Covington, Georgia, and Gambro-related expenditures,” Baxter reported Feb. 21.

Caterpillar Inc., which this month will open a new manufacturing facility near Athens, spent $3.4 billion on capital expenditures in 2012, an increase of $789 million over 2011. The heavy equipment maker reported Feb. 19 that it expects spending for 2013 “to be slightly below 2012 levels.”

Other Georgia public companies looking to boost spending include Graphic Packaging. The Marietta-based provider of packaging products to food, beverage and consumer products companies will increase spending by as much as 15 percent for 2013, Chief Financial Officer Daniel Blount told analysts on a Feb. 7 call.

“Capital expenditures are expected to be in the $215 million to $235 million range. This higher level of spending is driven by the early completion of the biomass boiler and the integration costs related to the European acquisitions,” he said.

The company is continuing its building of a biomass boiler in Macon that is expected to come on line in the second quarter.

Carter’s, the Atlanta-based children’s clothing maker and retailer, expects to more than double its capital spending, from $83 million last year to $200 million this year.

“We have a very significant investment agenda ahead of us with probably a record level of capital expenditures, to nearly $200 million,” Carter’s CFO Richard Westenberger told analysts Feb. 27.

“So, first and foremost, the priority is to invest in this full agenda of, I’d say, both growth and infrastructure projects which we have on the table,” he added.

However, there are likely to be more of the erratic spending cycles seen among Georgia public companies, said Conway MacKenzie’s Charleston.

From 2010 to 2011, combined capital expenditure was hiked up by $1.4 billion at Coca-Cola, UPS and Mohawk, then remained steady in 2012.

“In 2010 there was optimism about the improvement in the economy, so capital expenditure increased. But when companies realized [the optimism] was maybe premature, they started rethinking spending in 2012. It could happen again,” Charleston cautioned.

Indeed, uncertainty looms in the context of sequestration and inflation.

“The larger question is how our growing national debt would impact businesses. I do see that at some point in next five years, inflation and increased interest rates will reduce capital expenditure,” Charleston said.

Companies could pause their spending as quickly as early 2014 due to inflation, he added.